Come up with something people want, get them to pay for it while you make a profit, and figure out how to scale.
Follow that blueprint and you’re well on your way to building a successful startup, according to 500 Startups’ Dave McClure.
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Speaking at Lean Startup Melbourne, McClure, the founder of the US-based seed fund and accelerator program, says if founders do two of those three things, they will “probably be fine”.
“If you don’t do more than one of those things right, you’ll ultimately fail,” he says.
“Another thing that pisses me off is when people say we’ve achieved this level of traction, and we’ve spent absolutely no money on marketing.
“In fact almost by definition, if you’ve built a product that is valuable to anyone and has any amount of margin whatsoever, it’s most likely the case that you can probably use some of that margin to acquire more customers.
“And if you haven’t spent time to try and figure that out, you’re kind of not being very smart.”
The types of startups McClure finds interesting, reluctant as he was to answer the question, only responding after banging his head on the microphone several times, include those “selling shit online”, video commerce – “the ability to combine video with direct commerce”, mobile video, and anything in emerging markets.
“We tend to do a lot of investments in the Spanish-speaking market, we’re working on doing a lot of investments in the Arabic-speaking market,” he says.
“Most people think that’s absolutely fucking crazy. They’re two of the top five languages in the world. The relative size of the markets and the number of entrepreneurs and investors is really huge,” he says. There’s a lot less competition.
But there’s challenges finding investors in those markets.
“There’s 300 to 500 million Arab speakers, depending on how you cut the market, there’s probably like 1% of content, for 5 to 10% of the world’s population. So that’s a big arbitrage opportunity.”
— Dave McClure (@davemcclure) December 1, 2014
“Your friends buy shit”
While the primary monetization model for online content is through search or display advertising, “which is even more brain dead” – McClure says that’s somewhat counterintuitive, given that’s not how people behave offline. Away from the internet few people do original research. Instead they’re influenced by friends and those they admire.
“You probably have a friend who’s smarter than you about which phone to buy, which sneakers are cool, which dress or designer, or car or whatever (is cool),” McClure says.
“Those are the people who should make all the fucking money.”
Platforms like Twitter and Facebook, with product purchase information should be able to shift a huge amount of dollars online, to whoever has that influence, McClure says, and while celebrity endorsements are a “really brain fucking dead” form of that which is currently taking place, it should only occur at the end of a long list of other influences.
How to become a 500 Startups company
Don’t email McClure. Simple as that. His inbox is full of “qualified” introductions so don’t expect to get anywhere with a cold pitch via email. In fact, cold pitches won’t work in any manner, there’s a good chance those will just piss him off.
“It’s hard to take a cold pitch,” he says.
“The reality of the situation is I have a lot of qualified referrals from people in my inbox and I can’t even read those. Why the fuck should I pay attention to you? I’m sorry. I don’t mean to be an asshole.
“How do you get into the 500 Network or how do you get money from someone in the 500 Network? There’s a large number of people who are (involved) a bunch of which are in Australia, so you can probably get to know people who are founders in our network.
“If you can convince them we’ll usually pay attention.”
Startups need to get two of the following right, in order to be successful. Create something people want. Get them to pay for it while making a profit, and figure out how to scale.
Relying on organic growth is stupid. Very few businesses are built on purely organic, reliable acquisition.
Interesting sectors include: Selling anything online, video commerce, mobile video, and anything in emerging markets.
To pitch to 500 Startups, don’t email. Find a 500 startups company, get an introduction, and try and convince the founder that you have a good idea. McClure says if you can convince one of their own startups, they’ll usually listen too.